Frasers Hospitality Trust holders should accept offer: Maybank

Singapore two-dollar bills

Frasers Hospitality Trust‘s unitholders should accept the S$0.70 a unit offer from Frasers Property to take the REIT private, Maybank said in a note Monday.

Maybank said the deal should return around 23 percent to investors in the REIT’s initial public offering (IPO) in fiscal 2016, and allows unitholders to exit at a premium as Frasers Hospitality Trust faces an uneven distribution per unit (DPU) recovery amid rising macro headwinds.

FHT’s net asset value has fallen by around 22 percent and its DPU has declined around 87 percent since its IPO, despite closing S$565 million of acquisitions and S$60 million of asset enhancement initiatives (AEIs), Maybank noted.

“FHT lacks scale; it ranks among the smallest S-REITs by market cap, and remains the smallest hospitality REIT under coverage. Low trading liquidity from a small free-float which will likely need to climb over four times to be considered for index inclusion, and high trading yields, will limit acquisition growth opportunities, in our view,” Maybank said.

The offer is an attractive exit valuation, marking around 27 percent above the bank’s S$0.55 target price, the note said.

“We recommend investors accept the offer, and see investment options in the other hospitality REIT names,” Maybank said, citing CDL Hospitality Trusts as the best hospitality sector recovery proxy. Maybank added it liked Far East Hospitality Trust as a pure-play on Singapore assets.

Units of Frasers Hospitality Trust ended Monday at S$0.69, up 4.55 percent.